The new series of consumer price index (CPI) is not enough for a robust statistical analysis of prices, Reserve Bank Governor D Subbarao said on Friday.
He also said the new CPI has an excess focus on food prices, which has a 50% weight. House rents, which account for 10%, are also a cause for concern given doubts over the efficacy of the prices, he added.
“The new CPI has only 19 data points which are not sufficient for a statistically robust analysis,” Subbarao, who demits office on September 5, said while speaking at the Statistics Day conference at the RBI headquarters.
On the possibility of a focus-shift to the CPI, Subbarao said even in case of such an eventuality, the central bank will not abandon the wholesale price index (WPI) as a tool to monitor producer prices because of the deeper analytical insights it offers.
“We’ve traditionally used WPI because we thought the legacy CPI is not representative enough for the entire population. WPI is more extensively researched by way of its empirical relationship with other variable like output, monetary aggregates and interest rates and presents richer analytical insight,” he said, conceding that other central banks use CPI for policy formulation.
“In our country, we have a problem of excess of inflation measures,” he said, adding there is the WPI, three legacy CPI indices and the new CPI indices.
He acknowledged that the analysts have criticised the WPI for being flawed and also for not considering the services sector, which contributes two-thirds of the economy.
Maintaining that other central bankers are “reticent” talking about it, Subbarao said there is no single equilibrium exchange rate which is the most acceptable one to predict the real value of a currency.